ARLINGTON, Va.—Small businesses subject to new and intrusive financial surveillance that could ruin them are suing with the Institute for Justice (IJ) to protect their Fourth Amendment rights and the rights of their customers. The federal Financial Crimes Enforcement Network (FinCEN) yesterday implemented an order requiring certain businesses in targeted ZIP codes to report all cash transactions above $200. The normal reporting requirement is for cash transactions over $10,000. By dropping that to $200, FinCEN is treating virtually every honest, hardworking person as a potential criminal whose name and financial information will go into a database for criminal investigators to use. The targeted businesses could lose customers, who are understandably reluctant to hand over personal information, and the businesses will be swamped trying to file time-consuming reports for almost all transactions.
FinCEN’s March 14 order applies to money services businesses (MSBs) in 30 ZIP codes along the southwest border. MSBs are businesses that provide services like check cashing, currency exchange, money transfers, and money orders (often used for things like paying rent)—services that are vital to working class customers, many of whom do not have bank accounts. The 30 targeted ZIP codes are located in Texas and California—with many near El Paso and San Diego—and cover an area with a population of over a million people.
“This cash surveillance order casts a staggeringly wide net, but it will catch no big fish,” said IJ Senior Attorney Rob Johnson. “To the extent that criminals are moving money in $200 increments, they will just move that money to ZIP codes not covered by the order. But, meanwhile, ordinary people will have their private information suctioned into the government’s database, while small businesses will be destroyed by mountains of paperwork.”
In California, Esperanza Gomez, who owns a small San Diego area MSB, filed a new federal lawsuit in the Southern District of California. In Texas, IJ is representing Arnoldo Gonzalez, Jr., operator of a small MSB in Laredo, in an existing lawsuit filed by the Texas Money Services Business Association. On Friday, the association received a temporary restraining order preventing the government from enforcing the new requirements on its members. That temporary restraining order does not apply to businesses, like Esperanza’s, that are not part of the association.
“This business is my livelihood, but I could lose many of my customers because of this surveillance,” said Esperanza. “I’ve always complied with the law and will continue to do so, but it will be so costly that it will probably put me out of business. The government should target criminals and not treat people like they are criminals just because they are near the border.”
The cash surveillance order went into effect on April 14 and will last at least through September 9. FinCEN has indicated, however, that it may be renewed and could also be expanded to additional ZIP codes in the future. The reports mandated by the order require customers to provide detailed information including birthdates, Social Security or EIN numbers, and home addresses.
Customers who are leery of providing the additional, intrusive information are likely to avoid businesses in the targeted areas. And even if targeted MSBs keep their customers, the time and complication of filing the additional reports could put them out of business. Esperanza, whose modest storefront in San Diego has never had a transaction over $10,000 and hence has never filled out a currency transaction report, now faces literally hundreds of hours of additional labor each month filling out paperwork on essentially every customer.
“My customers are honest, hardworking people who want to make routine purchases here in the U.S. or in Mexico,” said Arnoldo. “They do not want the heavy burden of providing more information just to exchange modest amounts of cash. Even if I don’t lose customers, the new requirements could make the business simply unprofitable.”
IJ’s Project on the Fourth Amendment seeks to protect people from unreasonable searches and seizures. One of the foundational reasons for the creation of the amendment was to prevent the government from being able to acquire “general warrants”—wide-ranging warrants that failed to provide probable cause that a crime was being committed.
“The Founding Fathers knew the dangers of giving the government unlimited search powers and created the Fourth Amendment to protect privacy and property rights,” said IJ Attorney Betsy Sanz. “Financial privacy is an important part of that guarantee. Small businesses should not be dragooned to serve as financial surveillance agents for the government.”